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Top Stories

• EU Agrees on deal, Greek haircuts 50%
• BOJ Meeting ends in 5T bond buying program disappointing the market
• Nikkei up 2.04% Europe up 3.68%
• Oil at $92/bbl
• Gold at $1718/oz.

Overnight Eco

• JPY Retail Trade s.a. (MoM) (SEP) -1.2% vs. 0.0%
• EUR German Consumer Price Index (MoM) (OCT P) 0.15
• EUR Euro-Zone M3 s.a. (3M) (SEP) 3.1%

Event Risk on Tap

• USD Gross Domestic Product (Annualized) (3Q A) expected at 2.2%
• USD Gross Domestic Product Price Index (3Q A) expected at 2.5%
• USD Initial Jobless Claims (OCT 22)
• USD Continuing Claims (OCT 15)
• USD Pending Home Sales (MoM) (SEP)

Price Action

• USD/JPY below 76.00 on disappointment from BOJ
• AUD/USD Takes out 1.0600 on risk flows
• GBP/USD capped at 1.600 as QE talk weighs
• EUR/USD breaks 1.4000 but further progress limited

Risk assets staged a strong rally in the wake of a deal at the EU summit, with EUR/USD rising above the 1.4000 level for the first time in seven weeks. EU officials announced that  they reached a private sector agreement on the issue of haircuts for Greek sovereign bonds. Private sector holders will take a 50% write down on their holdings, allowing Greece to reduce its debt burden. Greece will be able to reduce its public debt to 120% of GDP by 2020 and will also receive up to $100 Billion euros from a new EU/IMF finance program. 

In addition to the Greek haircuts, the EU summit also reached an  agreement to lever up the EFSF as much as five fold to bring its total buying power up to 1 Trillion EUR and to allocate up to 100 Billion EUR to help recapitalize the region’s banks.  The final details of these agreements will be worked out in the near future, but the broad terms of the deal were sufficient enough to boost risk assets across the board. 

The pair however failed to make much progress beyond the 1.4000 figure as many questions remained unanswered. As we noted earlier, “In short it is not at all clear if the EU leaders attempts to pacify the secondary credit markets in the region will result in more receptive environment in the primary markets for such key members as Spain and Italy. Although both Spain and Italy are able to roll over their sovereign debt, they continue to pay punitive rates in the market and will face massive refinancing needs next year that could put further stress on their credit.”

In other developments, the yen continued to strengthen in the wake of BOJ meeting that disappointed traders as the central bank took only half hearted moves towards further monetary easing. Japanese officials acknowledged that the country remains mired in deflation and is unlikely to reverse that course before 2013. However,   they offered only a mild expansion of the present QE program adding just 5T yen to purchase long term bonds. Market players had been anticipating a more dramatic gesture of at least 20T yen and promptly sold USD/JPY below the 76.00 figure in the aftermath of the announcement.

Japanese officials have continued to express concern over the strengthening of the currency  with BOJ Governor Shirakawa stating that, "Current yen rises are having a big negative impact on Japanese corporate sentiment and exports.” However they remain reluctant to intervene in the markets prompting further yen buying by aggressive longs. We believe that this situation is unsustainable and will force the BOJ to intervene sooner rather than later especially if specs manage to pierce the key 75.00 level. Therefore the risks in the pair are skewed to the upside and caution is in order. 

With rally in EUR/USD stalled at the 1.4000 level, markets may be awaiting the North American open to see the Q3 US GDP numbers and the weekly jobless claims data. If the economic news surprises to the upside it could the risk rally further and push EUR/USD to test of the 1.4100 level as the day proceeds.  

FX Upcoming

Currency	GMT	EST	Release	Expected	Prior
USD	12:30	8:30	Gross Domestic Product (Annualized) (3Q A)	2.2%	1.3%
USD	12:30	8:30	Gross Domestic Product Price Index (3Q A)	2.5%	2.5%
USD	12:30	8:30	Initial Jobless Claims (OCT 22)		403K
USD	12:30	8:30	Continuing Claims (OCT 15)		3.719M
USD	14:00	10:00	Pending Home Sales (MoM) (SEP)		-1.2%

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.